Fast-food workers across the county have recently held a number of high
profile protests to agitate for higher wages. These protests have been
accompanied by efforts to increase the wages mandated by state and local
minimum wage laws, as well as a renewed push in some states and
localities to pass “living wage” laws. President Obama has proposed
raising the federal minimum wage to ten dollars an hour.

Raising minimum wages by government decree appeals to those who do
not understand economics. This appeal is especially strong during times
of stagnant wages and increased economic inequality. But raising the
minimum wage actually harms those at the bottom of the income ladder.
Basic economic theory teaches that when the price of a good increases,
demand for that good decreases. Raising the minimum wage increases the
price of labor, thus decreasing the demand for labor. So an increased
minimum wage will lead to hiring freezes and layoffs. Unskilled and
inexperienced workers are the ones most often deprived of employment
opportunities by increases in the minimum wage.

Minimum wage laws are not the only example of government policies
that hurt those at the bottom of the income scale. Many regulations that
are promoted as necessary to “rein in” large corporations actually hurt
small businesses. Because these small businesses operate on a much
narrower profit margin, they cannot as easily absorb the costs of
complying with the regulations as large corporations. These regulations
can also inhibit lower income individuals from starting their own
businesses. Thus, government regulations can reduce the demand for
wage-labor, while increasing the supply of labor, which further reduces
wages.

Perhaps the most significant harm to low-wage earners is caused by
the inflationist polices of the Federal Reserve. Since its creation one
hundred years ago this month, the Federal Reserve’s policies have caused
the dollar to lose over 95 percent of its purchasing power—that’s
right, today you need $23.70 to buy what one dollar bought in 1913! Who
do you think suffers the most from this loss of purchasing power—Warren
Buffet or his secretary?

It is not just that higher incomes can afford the higher prices
caused by Federal Reserve. The system is set up in a way that
disadvantages those at the bottom of the income scale. When the Federal
Reserve creates money, those well-connected with the political and
financial elites receive the newly-created money first, before general
price increases have spread through the economy. And most fast-food
employees do not number among the well-connected.

It is not a coincidence that economic inequality has increased in
recent years, as the Federal Reserve has engaged in unprecedented money
creation and bailouts of big banks and Wall Street financial firms. As
billionaire investor Donald Trump has said, the Federal Reserve’s
quantitative easing policies are a great deal for “people like me.” And
former Federal Reserve official Andrew Huszar has called QE "the
greatest backdoor Wall Street bailout of all time.”

Many so-called champions of economic equality and fairness for the
working class are preparing to confirm Janet Yellen as next Chairman of
the Federal Reserve. Yet Yellen is committed to continuing and even
expanding, the upward redistributionist polices of her predecessors.
Washington could use more sound economic thinking and less demagoguery.

By increasing unemployment, government policies like minimum wage
laws only worsen inequality. Those who are genuinely concerned about
increasing the well-being of all Americans should support repeal of all
laws, regulations, and taxes that inhibit job creation and economic
mobility. Congress should also end the most regressive of all taxes, the
inflation tax, by ending the Federal Reserve.